Bankruptcy remains possibly the best known and most feared insolvency process, yet there are changes afoot which may lead to the annual number of bankruptcy orders falling even further from the current low of just 20,318 in 2014 – the lowest annual level since 1998.
At the moment, a bankruptcy petition can only be issued in respect of an unpaid debt in the sum of £750, a threshold which was set 30 years ago. There is a planned increase of this threshold to £5,000 which is anticipated to take effect on 1st October 2015.
The greatest beneficiary of these changes will be the debtor him/herself, who will have more scope to agree flexible plans for repayment with creditors than at the current time. However whilst the planned increase of the threshold reduces the threat of bankruptcy for thousands of debtors, it is crucial that debtors work with professionals to agree realistic plans for repayments – whether this is through an individual voluntary arrangement or through an informal arrangement.
“We have decades of experience in tailoring suitable solutions for individuals who are facing a debt problem and with the increase in economic growth, rise in real wages and historically low interest rates, there has never been a better time for consumers to face their debt problems” explains Stephen Wainwright, partner.
What do these changes mean for creditors?
Whilst debtors will be happy with the increase in the bankruptcy threshold, creditors will have to re-consider the manner in which they pursue low value debts. Creditors chasing debtors for less than £5,000 will essentially be left with two choices, either to pursue the debtor through the court or, alternatively, enter into an informal agreement with the debtor for repayment.
Given the increase in the threshold, it may be that some creditors will rush to recover smaller debts prior to the new plans taking effect on 1st October 2015.
There are many occasions when we can act as an intermediary between the debtor and the creditor and negotiate informal agreements subject to it not being to the detriment of any other creditors that may be out there.
We have all met clients who would prefer to bury their heads in the sand rather than deal with their situation. However, the success of our tailored personal insolvency solutions have increased over the years, reflecting the fact that generally creditors want to work with debtors outside of bankruptcy proceedings to achieve a better return.